Social Implications of Decision Making Elements of Management Accounting - Essay Example

Social Implications of Decision Making Elements of Management Accounting Your name Course Tutor Institution Department In several organizations around the globe, management is the focal point of the successful results of whatever goods or services it deals in (Benston, 2013). There are different types of management such as the top level management which deals with managers who work at the top of the organizations where they perform guide strategy and planning. Another type of management is the middle level whereby it serves as the intermediate management level that is accountable to top management and responsibility in leading the lower level managers. Frontline managers are in charge of the fundamental production activities and processes. These particular managers require very high interpersonal and technical skills. General management deals with focus on the business as a whole whereas functional managers specialize in a particular unit or department such as accounting. The work of a management accountant is to supply economic information that aids in decision making processes (Benton, 2007). Management accountants have an in depth knowledge of the business sectors they work in and possess a range of skills including strategy, planning, management and strategy apart from accounting abilities they have. Through this combination, the management accountants provide specialized business guidance. We have seen that management accounting has several functions. We however narrow down to one of their functions, decision making as will be discussed below. Management accounting focuses on forecasting and making of decisions in an organization. They use their accounting deductions to advice an organization in every step it takes or should take in future so that the organization will continue existing and even improving in the industry. Such actions may include a firm buying new equipment, recruiting new personnel, training of its employees, technological advancements among many others. This adds up to forward planning, reviewing of the business performance and analyzing each and every outcome. A range of tool may be employed to enhance decision making such as ratio analysis, budgets and forecasts. Accounting managers deal with business strategies that enable a business to grow so as strengthening its position in the market through various ways such as developing the business from within and joining with other businesses through merging. They help the organization make strategic decisions through identifying and collecting vital information that they come across, measuring and interpreting the information obtained, analyzing information, making efforts to communicate findings, joining with other managers for planning changes and lastly monitoring and controlling the organization’s progress. Success of the business will entirely depend on the management accounting decisions made by the business (Burns, Ezzamel & Scapens, 2003). If good decisions are made, success will prevail but if the contrary occurs, the business might fail and even collapse. Through the wealth of research, the framework models a process which may be employed in finding one’s way whereby at times the aims can be confusing and the results conflicting. The multi- disciplinary nature of management accounting does not succinctly explain that they will often arise from similar theoretical foundations regarding society as the variety of theories is subsumed under the management account heading (Steffan, 2008). Embracing theories from other areas, management accounting has little concern for their philosophical reinforcements. It is encouraged to have an enhanced tolerance and knowledge of alternative research from the range of perspectives and disciplines. Without such awareness, people may become deep-rooted within well-defined and purely guarded positions where counter claims may flourish and other academic debates may be triggered. Views held as “facts” should be assessed to prevent the danger of an ideology being accepted unquestionably as facts and myths are developed and to some extent nurtured (Boland, 2012). An unintended and undesirable consequence often rises when conventional methods are applied as the early behavioral studies of accounting stated. According to Argyris (2013), accountants were criticized because of reported hierarchical punitive and basing their success on failures of others. The counter-productive effect was brought by tension and hostility between staff and the line managers. This brought a negative effect where organizational goals were not fulfilled. To achieve the organizational targets greater morale should be incorporated to increase the output. It has been a great challenge globally to integrate the social risk because of government instability, business corruption, child labor practices, anti corporate sentiments, terrorism, and environmental pollution among many others into the decisions of the management (Gyermati, 2005). It is still a great challenge to date to get an adequate methodology for integrating these issues into risk management. Some activities can however be incorporated in developing and implementing a model that is appropriate for decision making and measurement of social risk to improve organizational performance adequately. This may include anticipating, evaluating, mitigating and preparing for the risks. Another step may also include managing of alternatives (Bot & Junior, 2011). These steps help to improve the process of allocation of resources through measuring risks. In general, we can describe risks as the cause of any event that adversely affect an organization’s ability to achieve its goals and successfully implement its strategies. Social risk relate to the negativity that will be brought by calamities such as diseases, environmental pollutions, breach of the rights of indigenous people and challenges by stakeholders it is brought by negativity of the practices of the businesses (Bruns, 2008). All these negativities put the organization at risk. Regardless of the company’s directparticipation in the issue, societal perception of the relation between an organization and a particular social risk can cause large losses (Le roux, & Lotter, 2013). Therefore it is prudent to manage these risks whether they are actual or perceived. The Anti- World Trade Organization research should that investors caused a decrease in the market capitalization of companies with the absence of a reputation for corporate responsibility averagely by 378 million dollar per company albeit firms reputed to be socially responsible were not penalized (Schneitz & Epstein, 2014). This was a demonstration that a firm should manage positively its financial impact of a reputation for managing social risks well. Integrating a wider set of risks into the making of management decisions, companies must also recognize the importance of obtaining expertise in measuring the effect of social issues on financial performance (Bhimani & Bromwich, 2010). Companies that put into consideration such issues often do not include them in their calculations but relegate them to a cross-reference in the reporting of investment decision. This enables the valuation to risks be reduced since it has possibilities of negatively affect corporate earnings and shareholder and brand value. Some social risks come about due to the location of the business premises, type of product it manufactures, type of customers it attracts, nature of employments characteristics or even at times characteristics of the industry among many others. Terrorism attacks also increase risk resulting to overwhelming impact on businesses. To manage these risks, proper analysis, evaluation, preparation and mitigation should be considered. Marc, J. and Epstein (2006), developed a model so as measures to detect measurement and identification of risks that will in turn improve the management decisions. Other than building requirements for risks assessment of the Sarbanes-Oxley Act of 2002 in the US and other countries, it also built on work by the committee of sponsoring organizations of the Treadway commission through specifying tools that are used to identify and measure organizational risks. Through more effective management of organizational risks, the model focuses on improving the quality and usefulness of operation and also decisions that affect capital investment (Campbell, 2007). The model demonstrated the necessity of increased measurement of a wider set of risk to meet recent set of rules requirement and improvement of managerial performance and confidence of the stakeholder. The risk assessment model builds on the 2004 committee of sponsoring organizations. This includes enterprise risks, management whereby the scheme provided classifies risk into four categories. They include strategic risk- the choice of the step an organization will take to meet its objectives; operational risks- threats obtained from business processes that include acquiring of raw materials, transforming of the materials to finished goods, financing and marketing that are below standards and also losing of firm’s physical assets and reputation; reporting risks- how information can be undoubtedly relied because of its accuracy of information systems for decision making; compliance risk- solves the problem of inadequate compliance of law and order, behaviors of everyone in the firm and also gets reason that results in failure of adherence to stipulated rules by management, trading partners or employees ( Epstein & Rejc, 2005). The impact on the firms should also be measured. The capability to quantify potential impact happens when understanding, measuring and managing social risks is considered. Previously corporate risk was not adequately focused on internal financial controls. Nowadays, firms functioning in various countries identify preventions and mitigation strategies that address social issues. With understandings into social concerns, all companies are working hard to make business decisions that integrate financial information. However, the integration of social risk into the financial equation still remains a big challenge. Globalization has resulted in environment processes which are dissimilar to national levels and cannot be predicted (Driver & Mock, 2005). The accounting managers should therefore aim at understanding dynamics of the operating environment that is global in order to adequately and effectively manage related risks. Therefore in this context, corporate social responsibility programs can play a central role. It has been observed that companies that often have recognized brands have networked enterprises that extend globally often empower stakeholders in several ways through providing them with foundation of addressing social key grievances (Thukaram, 2013). This might be due to the companies in picture, who violated their own self-proclaimed standards or international community norms in areas such as labor practices, environmental sustainability, human rights or even due to the capacity that those companies have to do something about those issues that are coupled with the visibility that even make them vulnerable to pressure. The managing accountants and boards of such companies as a result, spend most of their time dealing with aspects of external accountability and the value chain (Julius, 2007). In the current research by the Kennedy School of Government on corporate social responsibility initiative focuses on exploring the intersection between corporate responsibility, governance and strategy. Another research has its findings that Booz Allen Hamilton, which is a global strategy and technological consulting firm deals with clients to deliver results that endure. Having more than 16000 employees on six continents, the organization has an annual turnover of $3 billion. It provides services in areas like strategy, operations, organizations, systems and technology of lending corporations (Zadek, 2004). In conclusion, it has been verified that companies that operate globally face a new reality that has changed the nature of risk and its management. Social risks can only be addressed through balancing them against the decisions of the business and also through determining the quality of engagement with stakeholders and their associated issues. References Benston, J. (2013). The Role of the Firm's Accounting System for Motivation. The Accounting Reiitw, 38(2), 347-54. Benton, T. (2007).Philosophical Foundations of Ihe Three Sociologies. London: Routledge and Kegan Paul. Bot, A., & Junior, R ., R.J. (2011). A study in system design: C. West Churchman and Chris. Accounting, Organizations and Society, 6(2), 109-18. Bruns, J.R. (2008). Accounting information and decision-making: some behavioral hypotheses. The Accounting Review, 43(3), 469-80. Campbell, J.P. (2007). On the nature of organizational effectiveness. In Goodman, P.S., Pennings, J.M. and Associates (Eds.). New Perspectives on Organizational Effectiveness. San Francisco: Jossey-Bass Driver, M.J. and Mock, T. H. (2005).Human information processing, decision style theory and accounting information systems. The Accounting Review, 50, 3, 490-511. Gyermati, G. (2005). Ideologies, roles and aspirations. The doctrine of the professions: basis of a power structure. International Social Science Journal, 27( 4), 629-54. Julius, D. (2007). Globalization and stakeholder conflicts: a corporate perspective. International affairs. 73(3), page 453. Thukaram, M. V. (2013). Management Accounting. New Delhi, New Age. Bhimani, A., & Bromwich, M. (2010). Management accounting retrospect and prospect. Amsterdam, CIMA/Elsevier. Le roux, G. S., & Lotter, W. A. (2013). Basic principles of cost and management accounting. Lansdowne, Juta. Steffan, B. (2008). Essential management accounting: how to maximise profit and boost financial performance. London, Kogan Page. Burns, J., Ezzamel, M., & Scapens, R. W. (2003). The challenge of management accounting change behavioural and cultural aspects of change management. Oxford, Elsevier. Read More